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Mandrake Motorcycles - Balance Sheets 31-Dec-15 31-Dec-14 Assets Current assets: Cash and cash equivalents $ 240,000 $ 425,000 Accounts receivable $ 185,000 $ 200,000 Inventory

Mandrake Motorcycles - Balance Sheets

31-Dec-15

31-Dec-14

Assets

Current assets:

Cash and cash equivalents

$ 240,000

$ 425,000

Accounts receivable

$ 185,000

$ 200,000

Inventory

$ 850,000

$ 630,000

Other current assets

$ 200,000

$ 210,000

Total current assets

$ 1,475,000

$ 1,465,000

Property, plant and equipment, net

$ 1,075,000

$ 1,175,000

Total assets

$ 2,550,000

$ 2,640,000

Liabilities

Current liabilities:

Accounts payable

$ 260,000

$ 205,000

Short term debt payable

$ 370,000

$ 320,000

Other current liabilities

$ 285,000

$ 280,000

Total current liabilities

$ 915,000

$ 805,000

Long term debt

$ 195,000

$ 410,000

Total liabilities

$ 1,110,000

$ 1,215,000

Stockholders equity:

Common stock

$ 1,325,000

$ 1,325,000

Retained earnings

$ 115,000

$ 100,000

Total stockholders equity

$ 1,440,000

$ 1,425,000

Total liabilities and stockholders equity

$ 2,550,000

$ 2,640,000

Mandrake Motorcycles - Income Statements

Year End 12/31/1

Year End 12/31/14

Nets sales

$ 1,590,000

$ 1,690,000

Cost of goods sold

$ 980,000

$ 1,175,000

Gross margin

$ 610,000

$ 515,000

Operating expenses:

Selling expenses

$ 300,000

$ 210,000

General and administrative expenses

$ 210,000

$ 200,000

Total operating expenses

$ 510,000

$ 410,000

Operating income

$ 100,000

$ 105,000

Interest expense

$ 48,000

$ 72,000

Income before taxes

$ 52,000

$ 33,000

Income taxes

$ 18,200

$ 11,550

Net income

$ 33,800

$ 21,450

Problem 14-10. Marty Monk Fisher owns the largest motorcycle dealership in southern Ohio. Recently, he was approached by Bob Sherman, founder of Mandrake Motorcycles, and offered the opportunity to be the sole distributor of Mandrake bikes in the state. Acceptance of the offer will require Monk to open a dedicated Mandrake showroom and repair facility and, obviously, stock Mandrake cycles and parts. Monk is quite impressed by the Mandrake product, but before making a major investment, he wants to be confident that the company will be around for the long haul. Accordingly, he has asked you to analyze the audited financial statements of Mandrake for the previous two years.

Required

a. Prepare a horizontal and a vertical analysis of the 2015 and 2014 financial statements.

b. Calculate the following ratios for 2015 and 2014: return on assets, gross margin percentage, receivables turnover, days sales in receivables, inventory turnover, days sales in inventory, debt to equity, and times interest earned.

c. Based on your analysis in parts a and b, comment on any matters that Monk should probe in an upcoming meeting with Bob Sherman from Mandrake.

Problem 14-11. Additional Information Related to Problem 14-10. In 2016, Mandrake Motorcycles declared bankruptcy. Subsequently, it was determined that in fiscal 2015, the company produced more units than needed to fill pending orders. The result was a substan- tial decrease in production cost per unit. The company uses the LIFO inventory method.

Required

Discuss how (or if) this information is consistent with the results of the analysis conducted in Problem 14-10, parts a and b.

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